Retail Promotions Retailing MKTG 6211 Professor Edward Fox Cox School of Business/SMU.
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Transcript of Retail Promotions Retailing MKTG 6211 Professor Edward Fox Cox School of Business/SMU.
Retail PromotionsRetail Promotions
RetailingMKTG 6211
Professor Edward Fox
Cox School of Business/SMU
Communications and Promotion
Source: Levy/Weitz
Vendor
Long-Term Objectives
Product-Focused
National
Specific product
Retailer
Short-term Objectives
Category/Store-Focused
Local
Assortment of
merchandise
Communications and Promotion RETAILER vs VENDOR
Adapted from Levy/Weitz
How Important Are Promotional Sales for Retailers?
For a traditional high-low packaged goods retailer, the sales from items in the ad represent approximately 25% of weekly grocery sales
Roughly 100 items out of many thousand are therefore responsible for one-quarter of a store’s volume
Patronage Rewards
Patronage RewardsShopper
Cards
Patronage Rewards
Patronage RewardsRetailer
Coupons
Retailer Promotions
Short-Term Incentives Offered by the Retailer that Lead to Immediate Purchase
DisplaysDisplays
Price-CutsPrice-Cuts
Retailer-Promotion Objectives
Retailer-Promotion Tools
Generate Store TrafficGenerate Store Traffic
Improve the Retailer’s Price Image
Improve the Retailer’s Price Image
Generate Profits from Consumers and Manufacturers
Generate Profits from Consumers and Manufacturers
Reinforce the Store’s Positioning and Image
Reinforce the Store’s Positioning and Image
Feature Advertising
Feature Advertising
Retailer PromotionsOBJECTIVES
Promotions are used to:Generate demand
Draw traffic into the storeDraw traffic into the store Improve the price image of the retailer
ProfitabilitySell incremental units of the promoted product, while reducing
the cost of goods
StrategyReinforce the retailer’s positioning in the market (e.g., price
leader, variety leader)
Retailer promotions also generate excitement and Retailer promotions also generate excitement and provide customers with a reason to visit more often provide customers with a reason to visit more often
Retailer PromotionsOBJECTIVES
Purpose of Promotions Relative Importance
Store traffic 50%
Price image 20%
Profitability 20%
Strategy/Positioning 10%8.
Source: Center for Retail Management, Northwestern University
Relative importance of promotional objectives
Retailer Promotion ObjectivesSTORE TRAFFIC
The retailer has a better “feel” for which items and promotions might generate traffic than for the contributions of promotions to price image and store positioning
Store traffic generates immediate results for the retailer, particularly in the promoted category
However, buyers/category managers may believe that nearly all categories can generate traffic – they can’t
Source: Center for Retail Management, Northwestern University
Retailer Promotion ObjectivesSTORE TRAFFIC
Promotions affect store traffic by:Generating more shopping tripsCausing consumers to switch storesAffecting price image
Increasing store loyalty
A caution, however... If categories are overpromoted (too often) and over
discounted (too low)
Consumers learn to buy only on promotionConsumers learn to buy only on promotion Promotions become unprofitablePromotions become unprofitable Total category profitability declinesTotal category profitability declines
Retailer Promotion ToolsPRICE DISCOUNTS
“N-for” and “buy one, get one” promotionsCause multiple units to be purchased
Cross bundling - with complementary itemsMay reduce the item’s volume, but increases total revenue and
(generally) profits
Price points (end-in-9)Avoid pricing promotions at 8s or 7s because they reduce
profits without gaining any additional sales or price impression
Source: Center for Retail Management, Northwestern University
Retailer Promotion ToolsFEATURE ADS
Ad Sizes
AAA B C
Ads on the front and back pages of the retailers’ Ads on the front and back pages of the retailers’ flyers, or Free Standing Inserts (FSIs), are flyers, or Free Standing Inserts (FSIs), are especially likely to be noticedespecially likely to be noticed
Retailer Promotion ToolsFEATURE ADS
AA ads should be used for traffic generation and price image
A ads should be used for price image, as well as traffic generation and profitabilityThese three objectives should be balanced in any given ad
B ads and C ads (liners) should be used to improve category profits
Source: Center for Retail Management, Northwestern University
Improve Category
Profits
Ad Size Continuum
Generate Traffic Large Small
Sales Promotion ToolsFEATURE ADS
The market share of the brand also influences the size of the ad that should be run
Larger brands are much more likely to draw traffic and make a price impression than smaller brands
In general, private label brands should be advertised less often, though…Some retailers differentiate based on private label (e.g.,
Sears)Some retailers run private label events
In general, larger brands should be used in AA- and In general, larger brands should be used in AA- and A-size adsA-size ads
Source: Center for Retail Management, Northwestern University
Retailer Promotion ToolsMERCHANDISING DISPLAYS
Displays should be used to:
Encourage customers to choose a sale item
Generate unplanned purchases
Expose customers to sale prices
Increase profits
Increase sales and profits
Improve price image
Displays influence customer behavior by exposing Displays influence customer behavior by exposing shoppers to the product, and increasing the shoppers to the product, and increasing the probability of considerationprobability of consideration
Adapted from Center for Retail Management, Northwestern University
Retailer Promotion ToolsMERCHANDISING DISPLAYS
Displays can also be used to sell related, or complementary itemsWingsAdjacent space on the end-of-aisle, table or other fixture
This may encourage add-on sales, and so increase the profitability of a display
Wings with complementary, or related items, Wings with complementary, or related items, should be a key element in the design of displaysshould be a key element in the design of displays
Adapted from Center for Retail Management, Northwestern University
Retailer Promotion ToolsMERCHANDISING DISPLAYS
• Often, however, displays are used primarily to Often, however, displays are used primarily to reduce labor requirementsreduce labor requirements and and avoid out-of-avoid out-of-stocksstocks
Adapted from Center for Retail Management, Northwestern University
Retailer Promotion Tools COUPONS
Entitle the Holder to a Reduced Price or Percentage OffManufacturer- or Retailer-SponsoredObjectives
Induce customer to try products for first timeConvert first time buyers to regular usersEncourage large purchases Increase usageProtect market share
But…Since coupons encourage larger purchases, may be stealing
sales from futureCoupons may annoy, alienate, and confuse customers
Retailer Promotion ToolsCOUPONS
In-ad coupons can be used to increase profits (if suppliers pay for the coupon)
By reducing the number of consumers who get the deep discount:increases average promotional margingenerally preserves the price impression of the deeply
discounted priceCoupons may also be used to limit the purchase
quantity of consumers at the deeply discounted price
Adapted from Center for Retail Management, Northwestern University
Retailer Promotion ToolsSHOPPER CARDS
Shopper cards are a Customer Relationship Management (CRM) tool designed to increase customer loyalty and gather data about customers
Retailers gather customer data from:Frequent shopper or shopper
loyalty cardsMembership cardsStore credit cards
Retailer Promotion ToolsSHOPPER CARDS
Shopper cards are used to:Reward customers based on purchase amountConfer special privileges and special treatment to the
best customers Involve customersPersonalize/customize transactions
Retailer Promotion ToolsSHOPPER CARDS
Shopper cards are predicated on the value of knowing value of knowing customer purchase historiescustomer purchase histories
To create incentives for shoppers to give retailers their purchase histories and related information, retailers may offer:low everyday prices (e.g., Sam’s Club, Costco)special discounts (e.g., Kroger, JCPenney,
Nordstrom)special incentives for purchase volume over time
(e.g., Neiman Marcus, American Airlines, Java City)
How Retailer Promotions Affect Category Purchase Behavior
Expand category volumeCause brand switching
CannibalizationChange purchase timingCause stockpiling
How Retailer Promotions Affect Category Purchase Behavior - Example
For beer…
Category expansion - Yes
Brand switching - Yes
Purchase acceleration - Yes, but only if the deal is very good (due to the high frequency of promotions)
Stockpiling - Yes, but again only if the deal is very good (due to the high frequency of promotions)